Tariffs are taxes on imported goods, used by governments to protect domestic industries, raise revenue, ensure product safety, or influence foreign policy. While they can support local businesses and jobs, tariffs may also raise prices for consumers and risk trade conflicts. Within the EU, no tariffs exist between member states, and external tariffs are set collectively.

The purpose of tariffs

A tariff is a tax or duty levied on imported goods. The importer of the goods pays the tariff, which is set by the government. This means that if you order a pair of shoes from China, for example, you may have to pay a certain amount or rate to be allowed to import the shoes. Tariffs on goods can have several different purposes, and you don’t have to apply the same tariffs to all goods or countries – you can also choose not to apply tariffs to certain goods or countries.

The first purpose is to protect domestic production. A government may choose to impose a tariff to protect or promote an industry because it cannot compete with foreign competition under normal market conditions. This is usually done to protect jobs and businesses. Most recently, the US in particular has used this to protect their steel industry.

The second purpose is that the government wants to increase its revenue by levying tariffs. This tariff is called a revenue tariff and its purpose is not to limit imports, but to increase government revenue, for example to balance a country’s balance of payments.

Tariffs can also be used to protect consumers. For example, if you have safety standards for the products that can be sold in your domestic market, you can introduce tariffs on goods from countries that do not comply with these standards. This increases the incentive for consumers to buy goods that are produced domestically and thus comply with the standards you have set.

Similarly, one purpose of imposing tariffs can also be to use it as a negotiating tool and to protect national security. It becomes an extension of a country’s foreign policy, as tariffs are used to put pressure on the opponent’s economy so you can get them to negotiate or do what you want. We saw this when EU member states imposed tariffs and sanctions on Russia after their attack on Ukraine.

Tariffs in the European Union

The European Union has a single market which, among other things, ensures that there are no tariffs between member countries. This means that there are no trade barriers when countries trade with each other. Specifically, you have the four freedoms that ensure the free movement of goods, services, capital and labour within the EU member states. The member states have formed what is known as a customs union to protect the single market by having a common tariff policy and no internal tariffs. The different customs authorities in the EU countries work together according to the same rules and tariff rates when processing goods coming from outside the EU.

When new tariffs are to be introduced on products imported into the European Union, they are decided by the European Council on a proposal from the European Commission. This means that it is the heads of government who decide which products to introduce tariffs on and how high the tariffs should be.

Are tariffs always a good idea?

Tariffs can help protect domestic companies from cheap competition from abroad. If goods from outside the EU are much cheaper, it can be difficult for European manufacturers to keep up. By placing a tariff on imports, the foreign product becomes more expensive – which can make it easier for local businesses to survive and create jobs. In addition, tariffs can be used as a political tool to promote certain values, for example by protecting the environment or ensuring certain social standards.

While tariffs can help some businesses, they also have clear disadvantages. First and foremost, they can lead to higher prices for consumers because imported goods become more expensive. This can especially affect those who can’t afford the more expensive local alternatives. Tariffs can also create tensions between countries and, in the worst case, lead to trade conflicts where countries retaliate with their own taxes. In a globalised world where countries trade closely together, this can quickly have major economic consequences.